Intrinsic value of Empire Industries Ltd - EIL

Previous Close

$0.51

  Intrinsic Value

$0.92

stock screener

  Rating & Target

str. buy

+81%

  Value-price divergence*

0%

Previous close

$0.51

 
Intrinsic value

$0.92

 
Up/down potential

+81%

 
Rating

str. buy

 
Value-price divergence*

0%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of EIL stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -9.92
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
Revenue, $m
  118
  126
  134
  143
  152
  161
  171
  181
  191
  202
  213
  225
  238
  251
  265
  279
  294
  309
  326
  343
  361
  379
  399
  420
  441
  464
  488
  513
  539
  566
  595
Variable operating expenses, $m
 
  78
  83
  88
  94
  100
  106
  112
  118
  125
  132
  140
  147
  155
  164
  173
  182
  191
  202
  212
  223
  235
  247
  260
  273
  287
  302
  317
  334
  351
  368
Fixed operating expenses, $m
 
  46
  47
  48
  50
  51
  52
  53
  55
  56
  58
  59
  61
  62
  64
  65
  67
  68
  70
  72
  74
  76
  77
  79
  81
  83
  86
  88
  90
  92
  94
Total operating expenses, $m
  117
  124
  130
  136
  144
  151
  158
  165
  173
  181
  190
  199
  208
  217
  228
  238
  249
  259
  272
  284
  297
  311
  324
  339
  354
  370
  388
  405
  424
  443
  462
Operating income, $m
  1
  2
  4
  6
  8
  10
  13
  15
  18
  21
  24
  27
  30
  34
  37
  41
  45
  49
  54
  59
  64
  69
  75
  81
  87
  93
  100
  108
  115
  124
  132
EBITDA, $m
  5
  3
  5
  7
  10
  12
  15
  17
  20
  23
  26
  29
  33
  36
  40
  44
  48
  53
  57
  62
  67
  73
  79
  85
  91
  98
  105
  113
  121
  129
  138
Interest expense (income), $m
  0
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
Earnings before tax, $m
  3
  1
  3
  5
  7
  9
  11
  13
  16
  19
  21
  24
  27
  31
  34
  38
  41
  45
  50
  54
  59
  64
  69
  75
  81
  87
  93
  100
  108
  115
  124
Tax expense, $m
  2
  0
  1
  1
  2
  2
  3
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  15
  16
  17
  19
  20
  22
  23
  25
  27
  29
  31
  33
Net income, $m
  4
  1
  2
  3
  5
  6
  8
  10
  12
  14
  16
  18
  20
  22
  25
  27
  30
  33
  36
  39
  43
  47
  50
  55
  59
  63
  68
  73
  79
  84
  90

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  79
  84
  90
  96
  101
  108
  114
  121
  128
  135
  143
  151
  159
  168
  177
  187
  197
  207
  218
  229
  241
  254
  267
  281
  295
  311
  327
  343
  361
  379
  398
Adjusted assets (=assets-cash), $m
  79
  84
  90
  96
  101
  108
  114
  121
  128
  135
  143
  151
  159
  168
  177
  187
  197
  207
  218
  229
  241
  254
  267
  281
  295
  311
  327
  343
  361
  379
  398
Revenue / Adjusted assets
  1.494
  1.500
  1.489
  1.490
  1.505
  1.491
  1.500
  1.496
  1.492
  1.496
  1.490
  1.490
  1.497
  1.494
  1.497
  1.492
  1.492
  1.493
  1.495
  1.498
  1.498
  1.492
  1.494
  1.495
  1.495
  1.492
  1.492
  1.496
  1.493
  1.493
  1.495
Average production assets, $m
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
  21
  23
  24
  25
  26
  27
  29
  30
Working capital, $m
  -12
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  47
  50
  53
  55
  58
  61
  64
  67
  71
Total debt, $m
  27
  31
  35
  39
  44
  48
  53
  58
  64
  69
  75
  81
  87
  93
  100
  107
  115
  123
  131
  139
  148
  158
  168
  178
  189
  200
  212
  224
  237
  251
  266
Total liabilities, $m
  59
  63
  67
  71
  76
  80
  85
  90
  96
  101
  107
  113
  119
  125
  132
  139
  147
  155
  163
  171
  180
  190
  200
  210
  221
  232
  244
  256
  269
  283
  298
Total equity, $m
  20
  21
  23
  24
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
  58
  61
  64
  68
  71
  75
  79
  83
  87
  91
  96
  101
Total liabilities and equity, $m
  79
  84
  90
  95
  102
  107
  114
  121
  128
  135
  143
  151
  159
  167
  177
  186
  197
  207
  218
  229
  241
  254
  268
  281
  296
  311
  327
  343
  360
  379
  399
Debt-to-equity ratio
  1.350
  1.450
  1.540
  1.630
  1.710
  1.780
  1.840
  1.910
  1.960
  2.020
  2.070
  2.110
  2.160
  2.200
  2.240
  2.270
  2.310
  2.340
  2.370
  2.400
  2.430
  2.450
  2.480
  2.500
  2.520
  2.550
  2.570
  2.580
  2.600
  2.620
  2.640
Adjusted equity ratio
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  1
  2
  3
  5
  6
  8
  10
  12
  14
  16
  18
  20
  22
  25
  27
  30
  33
  36
  39
  43
  47
  50
  55
  59
  63
  68
  73
  79
  84
  90
Depreciation, amort., depletion, $m
  4
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
Funds from operations, $m
  -14
  2
  3
  5
  6
  8
  10
  12
  14
  16
  18
  20
  22
  25
  27
  30
  33
  36
  40
  43
  47
  50
  55
  59
  63
  68
  73
  78
  84
  90
  96
Change in working capital, $m
  -8
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
Cash from operations, $m
  -6
  1
  2
  4
  5
  7
  9
  10
  12
  14
  16
  19
  21
  23
  26
  29
  31
  34
  38
  41
  44
  48
  52
  56
  61
  65
  70
  75
  81
  87
  93
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
New CAPEX, $m
  -12
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  -12
  -1
  -1
  -1
  -1
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
Free cash flow, $m
  -18
  -1
  1
  2
  3
  5
  7
  8
  10
  12
  14
  16
  18
  20
  23
  25
  28
  31
  34
  37
  40
  44
  47
  51
  55
  60
  64
  69
  74
  80
  86
Issuance/(repayment) of debt, $m
  17
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
Issuance/(repurchase) of shares, $m
  0
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  16
  5
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
Total cash flow (excl. dividends), $m
  0
  4
  5
  6
  8
  10
  11
  13
  15
  17
  19
  22
  24
  27
  29
  32
  35
  38
  42
  45
  49
  53
  57
  62
  66
  71
  76
  82
  87
  94
  100
Retained Cash Flow (-), $m
  4
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  3
  3
  5
  6
  8
  10
  12
  13
  15
  18
  20
  22
  25
  27
  30
  33
  36
  39
  42
  46
  50
  54
  58
  62
  67
  72
  77
  83
  89
  95
Discount rate, %
 
  9.80
  10.29
  10.80
  11.34
  11.91
  12.51
  13.13
  13.79
  14.48
  15.20
  15.96
  16.76
  17.60
  18.48
  19.40
  20.37
  21.39
  22.46
  23.58
  24.76
  26.00
  27.30
  28.67
  30.10
  31.61
  33.19
  34.85
  36.59
  38.42
  40.34
PV of cash for distribution, $m
 
  2
  3
  4
  4
  5
  5
  5
  5
  5
  4
  4
  3
  3
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
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Empire Industries Ltd. designs, fabricates, manufactures, erects and sells engineered products. The Company also provides steel fabrication and installation services to industrial and infrastructure markets, primarily in western Canada. Its segments include Media-based Attractions, Manufactured Products, Steel Fabrication Services and Corporate. The Media-based Attractions segment includes design and manufacture of complex ride systems, telescopes, custom machinery and equipment. The Manufactured Products segment manufactures Hydrovac trucks for excavation service providers to the oil and gas industry and the municipal market. The Steel Fabrication Services segment provides structural steel fabrication and installation, and includes fabrication of tanks, pressure vessels and other specialty carbon and stainless steel products. It caters to the entertainment industry, natural resource infrastructure, manufacturing and processing industries, excavation industry and the government sector.

FINANCIAL RATIOS  of  Empire Industries Ltd (EIL)

Valuation Ratios
P/E Ratio 8.4
Price to Sales 0.3
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow -5.6
Price to Free Cash Flow -1.9
Growth Rates
Sales Growth Rate -9.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 50%
Cap. Spend. - 3 Yr. Gr. Rate 43.1%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 5%
Total Debt to Equity 135%
Interest Coverage 0
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 5.5%
Return On Total Capital 9.8%
Ret/ On T. Cap. - 3 Yr. Avg. 10.3%
Return On Equity 18.2%
Return On Equity - 3 Yr. Avg. 18.3%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 18.6%
Gross Margin - 3 Yr. Avg. 18%
EBITDA Margin 5.9%
EBITDA Margin - 3 Yr. Avg. 4.4%
Operating Margin 0.8%
Oper. Margin - 3 Yr. Avg. 3.2%
Pre-Tax Margin 2.5%
Pre-Tax Margin - 3 Yr. Avg. 2.6%
Net Profit Margin 3.4%
Net Profit Margin - 3 Yr. Avg. 2.8%
Effective Tax Rate 66.7%
Eff/ Tax Rate - 3 Yr. Avg. 16.7%
Payout Ratio 0%

EIL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EIL stock intrinsic value calculation we used $118 million for the last fiscal year's total revenue generated by Empire Industries Ltd. The default revenue input number comes from 2016 income statement of Empire Industries Ltd. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our EIL stock valuation model: a) initial revenue growth rate of 6.7% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 9.8%, whose default value for EIL is calculated based on our internal credit rating of Empire Industries Ltd, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Empire Industries Ltd.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of EIL stock the variable cost ratio is equal to 61.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $45 million in the base year in the intrinsic value calculation for EIL stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Empire Industries Ltd.

Corporate tax rate of 27% is the nominal tax rate for Empire Industries Ltd. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the EIL stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for EIL are equal to 5.1%.

Life of production assets of 1.5 years is the average useful life of capital assets used in Empire Industries Ltd operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for EIL is equal to 11.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $20 million for Empire Industries Ltd - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 66.081 million for Empire Industries Ltd is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Empire Industries Ltd at the current share price and the inputted number of shares is $0.0 billion.

RELATED COMPANIES Price Int.Val. Rating
DE Decisive Divid 4.30 4.85  hold
Financial statements of EIL
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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